Dollar higher against euro as Spain strikes

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch)—The dollar gained against the euro Thursday as peripheral euro-zone bond yields rose and Spanish workers staged a nationwide strike over austerity measures ahead of the government’s presentation of its latest budget plans.

Concerns about the prospects for an economic hard landing in China and the global growth outlook also continued to weigh on risk-oriented currencies.

The euro
EURUSD, +0.4665%
bought $1.3294, down from $1.3326 in late North American trading Wednesday, sliding as Italian and Spanish 10-year bond yields pushed higher amid mounting nervousness over Spain’s budget.

U.S. ticking fiscal time bomb?

(4:13)

The U.S. is headed toward what Fed chief Ben Bernanke calls a "fiscal cliff" at year-end, including tax hikes and spending cuts. (Photo: AP)

The ICE dollar index
DXY, -0.30%
which measures the greenback’s performance against a basket of six major currencies, stood at 79.176, off from 79.253 late Wednesday.

The Japanese yen, the No. 2 weighted component of the dollar index, jumped against several currencies.

With Spain’s 2012 budget to be delivered on Friday, major trade unions called a one-day strike in protest of additional austerity measures. Read about Spain’s budget, strike.

“If the budget delivers any negative surprises or is not considered sufficiently tough enough to rein in Spain’s budget deficit, then international investors could ditch Spain all together, which is negative in the long term,” said Kathleen Brooks, research director at Forex.com.

As for data, the European Commission’s economic sentiment indicator tracking the 17-nation euro zone unexpectedly slipped for March, weighing on European stocks. The euro failed to find support from a steeper-than-expected drop in German unemployment and the latest in a series of well-received Italian government bond auctions.

On Wall Street, equities declined, reviving traders’ impulse to sell currencies considered more aligned with risky assets and buy so-called safe-haven currencies. Read about U.S. stocks.

“As far as the risk trade is concerned, the U.S. is very much acting as the global bulwark, in the midst of concerns about China and the early resumption of European worries currently mostly related to the Spanish budget that will not go away any time soon,” said Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank.

Analysts at Nomura Securities said the euro will fall to $1.28 by the end of the second quarter—a little better than previously forecast—and then down to $1.23 by the end of the year.

This month, the euro has declined 0.3%, cutting its year-to-date gain to 2.6%.

The dollar index is up 0.6% for March, though still off 1.3% so far this year.

Aussie, Japanese yen

This month, the aussie has dropped 3.5% against the U.S. currency, though it’s still up 1.5% this year.

The yen rose, not just as a traditional destination for safe-haven seekers but potentially as Japanese companies and investors may be selling foreign investments and repatriating profits as the end of the nation’s fiscal year is at hand.

The dollar
USDJPY, -0.20%
pared losses to ¥82.45 compared with ¥82.78 late Wednesday. The euro
EURJPY, +0.27%
followed suit, dropping to ¥109.36 from ¥110.43.

“Risk aversion continues to be the main theme in the foreign-exchange market,” said GFT director of currency research Kathy Lien, referring to the yen.

Trading in the currency may also be swayed by discussions of raising the country’s sales tax to cut its deficit, though such a move risks slowing consumption and the economic recovery , analysts at Brown Brothers Harriman said.

So far this month, the dollar has advanced 1.5% against the yen, adding to the year’s 7.2% jump. The euro is up by 1.2% for March and by 9.9% so far in 2012.

The British pound
GBPUSD, +0.1346%
turned up to $1.5940 from $1.5895, turning a monthly loss into a 0.1% gain. For this year, sterling is still up 2.6% against the greenback.

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